Market News

By Niket Nishant and Rae Wee (Reuters)

July 24 (Reuters) — The Japanese yen was on course for its sharpest weekly decline since May on Friday, capping a volatile week that saw the currency fall to fresh 40-year lows against the U.S. dollar despite repeated official efforts to stabilise it.

Analysts said verbal intervention has had only a limited impact, and even direct market intervention would likely provide only temporary relief unless the Bank of Japan (BOJ) accelerates the pace of interest rate increases.

The U.S. Treasury Department added to calls for tighter Japanese monetary policy on Thursday, warning that excessive exchange-rate volatility was undesirable.

The yen's weakness also reflected broad U.S. dollar strength. The dollar was set for a weekly gain of 0.88%, its strongest performance since May.

Christian Antúnez, Global Fixed Income and FX Associate at Lazard Asset Management, said intervention could buy policymakers time but would not reverse a move driven by economic fundamentals.

Inflation Concerns Support the Dollar

Although softer U.S. inflation data for June initially raised hopes that price pressures were easing, renewed conflict in the Middle East has reignited concerns about higher energy costs and inflation.

Oil prices climbed above $100 per barrel this week for the first time in nearly two months. Federal Reserve Chair Kevin Warsh has repeatedly stressed the central bank's commitment to returning inflation to its 2% target.

Macrae Sykes, Portfolio Manager at Gabelli, said one month of encouraging inflation data was not enough to change the Fed's outlook.

Euro and Sterling

The euro rose 0.1% to $1.1388 after the European Central Bank left interest rates unchanged while keeping the possibility of a September rate hike open.

ING strategist Michiel Tukker said elevated oil prices continue to increase the risk of second-round inflation effects, leaving markets uncertain about the outlook.

According to LSEG data, traders are pricing in a 29.9% probability of an ECB rate hike in September.

Sterling gained 0.15% to $1.3335 after rebounding from a three-week low, while the U.S. Dollar Index eased 0.09% to 101.35.